Russian developer bets on "Manhattan sur Seine"

By Christian Plumb

7 Min Read

The project for the Hermitage Plaza towers, designed by British architect Norman Foster, in La Defense near Paris, is seen in a handout released by Hermitage Group on October 29, 2012. For Paris, a city whose priciest apartments boast mansard roofs and wrought-iron balconies, it's an audacious bet: a pair of shimmering, largely residential, luxury towers that might look more at home in Dubai or Shanghai. If the Hermitage Plaza towers do see the light of day, they could transform the concrete canyons of Paris's La Defense district, now nearly all offices. They could also spur more modern high-end residential construction in a city best-known for its grand 19th-century boulevards.Groupe Hermitage/Foster + Partners/Handout

PARIS (Reuters) - For Paris, a city whose priciest apartments boast mansard roofs and wrought-iron balconies, it's an audacious bet: a pair of shimmering, largely residential, luxury towers that might look more at home in Dubai or Shanghai.

So far the improbable 2.2 billion-euro ($2.88 billion) development of what would be Europe's tallest buildings - eclipsing London's controversial 'Shard' skyscraper - has confounded the naysayers in overcoming preliminary hurdles.

If the Hermitage Plaza towers, designed by British architect Norman Foster, do see the light of day, they could transform the concrete canyons of Paris's La Defense district, now nearly all offices. They could also spur more modern high-end residential construction in a city best-known for its grand 19th-century boulevards.

"The idea is to create a Manhattan in the French style in La Defense," said Emin Iskenderov, head of the Hermitage Group, which is developing the towers. "There are many people nowadays who want more than the traditional charming Paris apartment."

The project received planning permission in March and has since beaten back several legal challenges from local groups.

One of those groups, Vivre a la Defense, representing tenants of a building that needs to be demolished to make way for Hermitage Plaza, last month appealed to France's highest court after a lower court setback.

Opponents criticize the project for its treatment of local residents. They say Iskenderov's plan to replace the area's moderately priced apartments with luxury ones is wrongheaded in a country that suffers from a housing shortage.

"If it doesn't work, we'll be in big trouble," said Jean-Andre Lasserre, Socialist councilor for Courbevoie, a neighborhood that adjoins La Defense. "If it does work, we'll have the type of people who live there for one or two months out of the year. The rest of the time it will be empty."

Still, the project - first trumpeted by then-President Nicolas Sarkozy during a visit to St Petersburg two years ago, alongside his Russian counterpart Dmitry Medvedev and Iskenderov himself - has been signed off on by the mayor of Courbevoie, a member of Sarkozy's center-right party.

The Russian-born developer told Reuters he is on track to get bank financing by January at the latest, even though the amount needed has jumped to 1.2 billion euros from a previously targeted 700 million.

Getting more from the banks now would allow the 36-year-old Iskenderov, who has raised eyebrows with his sudden emergence on the French real estate scene, to rely less on the proceeds of apartment sales.

"We don't want to sell them in a hurry because that would mean a loss in value," Iskenderov said, while insisting that he had already heard from 4,000 potential buyers for the family-sized apartments, which measure 200 square meters on average.

"The idea is to sell them as close to the delivery date as possible," he said, predicting completion in early 2019 - a good three years later than initially forecast.

Born in Moscow, Iskenderov moved to France with his parents at the age of 15, then in 1998 back to Moscow, where he eventually joined Mirax, a now-bankrupt developer known for luxury housing.

Hermitage began as Mirax's French unit and split off in 2009 with funds that Iskenderov says account for most of the roughly 200 million euros in equity he plans to plough into the project.

Iskenderov has high-profile allies, including the public entities that manage La Defense. The site's main contractor will be construction firm Bouygues, whose head Martin Bouygues is godfather to one of Sarkozy's sons.

"COLOSSAL" LOAN

The project for the Hermitage Plaza towers, designed by British architect Norman Foster, in La Defense near Paris, is seen in a handout released by Hermitage Group on October 29, 2012. For Paris, a city whose priciest apartments boast mansard roofs and wrought-iron balconies, it's an audacious bet: a pair of shimmering, largely residential, luxury towers that might look more at home in Dubai or Shanghai. If the Hermitage Plaza towers do see the light of day, they could transform the concrete canyons of Paris's La Defense district, now nearly all offices. They could also spur more modern high-end residential construction in a city best-known for its grand 19th-century boulevards.Groupe Hermitage/Foster + Partners/Handout

While Iskenderov paints the loan as a near certainty, even pinpointing the rate at 7 percent, others expressed skepticism.

"At this moment, obtaining that level of financing is complicated," said Ludovic Delaisse, head of the offices department at commercial real estate firm Cushman & Wakefield in France. "A 2 billion-euro project is colossal."

Iskenderov also said 15 hotel operators had expressed interest in the right to run a five-star hotel that would be part of the complex. A final decision will be made within a couple of months, he said.

Another 13 percent of the towers will be set aside for office space, with lower rise buildings included in the complex to house a high-end shopping mall, student apartments and even an art gallery.

If the project is to succeed Iskenderov will have to transform perceptions of the La Defense neighborhood - a tall order given its image as a financial district which goes deathly quiet on weekends and after working hours.

"We're going to fill this void just so there is life at La Defense after 8 p.m.," Iskenderov said, adding London's Canary Wharf, a similarly purpose-built office district outside the city center, had done better at promoting after hours life.

Bringing apartments to La Defense, where offices have suffered from high vacancy, echoes initiatives in London where developers have bet on residential schemes in commercial zones like the financial district, West End, and even Canary Wharf.

MULTI-USE

To bring about such changes, the Hermitage Plaza project envisions France's first truly mixed-use complex - akin to the Shard or New York's Time Warner building.

The New York building had little trouble luring tenants like Time Warner alongside a high-end shopping mall and top-priced apartments. But it sits at the corner of Central Park, while the Hermitage's location has no such allure.

A multi-use project with apartments, a hotel and offices risks not doing any one thing particularly well.

Foster, whose phallic Gherkin tower made a permanent mark on London and who has given the 85- and 86-story Hermitage towers an aura of architectural respectability, declined to comment.

Socialist President Francois Hollande's tax hikes, which have some wealthy French eyeing the exits, could be another headwind. Iskenderov says he would aim to sell about 40 percent of the apartments to foreigners.

"Even though I think it's actually important to breathe new life into La Defense and make it more of a mixed neighborhood, with stores, schools and residences, I'm not a big believer in combining those all in a single building," said Alexis Motte, an executive with tenant representative Mobilitis.

Financing "will be very difficult", and political issues will still need to be resolved, he said.

Still Iskenderov has beaten the odds so far.

"I didn't believe in it at all, but it's becoming more and more credible," Motte said.